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PROSPECTUS SUPPLEMENT
FIRST ALLMERICA FINANCIAL LIFE INSURANCE COMPANY
FULCRUM SEPARATE ACCOUNT
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
FULCRUM SEPARATE ACCOUNT
FULCRUM VARIABLE LIFE SEPARATE ACCOUNT
THE PALLADIAN TRUST
SUPPLEMENT TO
PROSPECTUSES DATED MAY 1, 1998
July 15, 1998
This supplement describes changes to the Trust and its Portfolios that resulted
from actions taken at a meeting of shareholders on June 8, 1998 and a meeting of
the Board of Trustees on June 17, 1998.
NEW NAME APPROVED FOR THE TRUST
Effective September 1, 1998, the name of the Trust will be changed to
"The Fulcrum Trust."
MANAGER
As explained on page 11 of the Trust Prospectus, Allmerica Financial
Investment Management Services, Inc. ("AFIMS" or the "Manager") serves as
Manager to the Trust. The Investment Management Agreement under which AFIMS
serves as the Manager was initially approved by the Board on February 11,
1998 and minor amendments were approved by the Board on April 9, 1998. Trust
shareholders approved the agreement at the June 8, 1998 shareholder meeting
which will allow AFIMS to continue to serve as Manager, subject to the terms
of the agreement and the rules of the Securities and Exchange Commission
("SEC").
NEW PORTFOLIO MANAGER FOR THE GROWTH PORTFOLIO
Effective August 1, 1998, Pilgrim Baxter Analytic Investors, Inc. ("Pilgrim
Baxter Analytic") will replace Stonehill Capital Management, Inc.
("Stonehill") as Portfolio Manager for The Growth Portfolio of the Trust.
The Portfolio Manager Agreement under which Pilgrim Baxter Analytic will
serve as Portfolio Manager was approved by the Board of Trustees on June 17,
1998. Under the rules of the SEC, shareholder approval of the agreement is
required so that Pilgrim Baxter Analytic may continue as Portfolio Manager
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November 29, 1998. Contract owners invested in the Portfolio as of July 17,
1998 will have an opportunity to vote by proxy or in person on the agreement
with Pilgrim Baxter Analytic at a meeting scheduled for September 15, 1998.
The Board has recommended that shareholders approve the Portfolio Manager
Agreement. If shareholders approve the agreement, Pilgrim Baxter Analytic
will continue to serve as Portfolio Manager. If not, the Board will meet to
consider its options.
Founded in 1970, Pilgrim Baxter Analytic (the firm's name will be formally
changed from Analytic-TSA Global Asset Management, Inc. to Pilgrim Baxter
Analytic Investors, Inc. on or about July 20, 1998) is located at 700 South
Flower Street, Suite 2400, Los Angeles, California 90017. It was acquired by
United Asset Management Corporation ("UAM"), a publicly traded company
located at One International Place, Boston, MA 02110 in 1985. Pilgrim Baxter
Analytic acts as an investment adviser for individuals, banks and thrift
institutions, investment companies, pension and profit sharing plans, trusts,
estates and charitable organizations and corporations. As of June 30, 1998,
Pilgrim Baxter Analytic managed assets of $852 million. Harindra de Silva
and Dennis Bein will be primarily responsible for the day-to-day investment
management of the Portfolio. Mr. de Silva is a Chartered Financial Analyst
and has served as President of Pilgrim Baxter Analytic since April 1998. He
was formerly Managing Director of Pilgrim Baxter Analytic from October 1996
to April 1998. From 1986 to 1998, he concurrently served as a Principal of
Analysis Group, Inc., an economic research firm, where he was responsible for
providing research services to institutional investors including
investment managers, large pension funds and endowments. Mr. Bein has been a
member of the portfolio management and research team for Pilgrim Baxter
Analytic since August 1995. He concurrently served as a senior associate for
Analysis Group, Inc. from 1990 until 1998. On or about July 20, 1998, Pilgrim
Baxter Analytic will become a wholly-owned subsidiary of Pilgrim Baxter &
Associates, Ltd., which is also a wholly-owned subsidiary of UAM.
The terms of the Portfolio Manager Agreement with Pilgrim Baxter Analytic are
substantially the same as the terms of the current agreement with Stonehill.
The agreement provides for a fixed fee for the first year equal to 0.80% of
average daily net assets of the Portfolio. AFIMS and Pilgrim Baxter Analytic
have agreed to a further limitation on the first year fee. For the first
year, the fee will be calculated at the lesser of the following two rates:
(1) 0.80%; or (2) the rate that would have applied under the old Portfolio
Manager Agreement with Stonehill. The latter rate varies based on prior
performance. After the first year of its agreement, Pilgrim Baxter Analytic
will be paid under the same performance-based fee schedule included in the
current agreement with Stonehill.
NEW INVESTMENT POLICIES FOR THE GROWTH PORTFOLIO
Effective August 1, 1998, the investment policies of The Growth Portfolio
will be revised in light of the appointment of the new Portfolio Manager, and
the description of such investment policies on pages 17-18 of the Trust
Prospectus will be replaced with the following:
To achieve its objective, the Portfolio generally invests at least 65% of its
assets in the common stocks of U.S. domiciled corporations and equity-type
investments that relate to U.S. domiciled corporations. Equity-type
investments include preferred stock, warrants and convertible securities. The
Portfolio may also invest in foreign equity securities, foreign equity-type
investments, investment grade debt securities, high yield/high risk debt
securities (up to 5% of assets), futures contracts and options, money market
investments and other securities described on pages 21-31 of the Trust
Prospectus. For temporary defensive purposes, the Portfolio may invest all
or part of its assets in investment grade debt securities or money market
instruments.
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The Portfolio Manager currently uses a proprietary computer model designed to
build a portfolio of stocks that, when viewed as a group, have fundamental
characteristics that are considered to be superior to the 500 stocks included
in the Standard & Poor's 500 Composite Stock Price Index ("S&P 500"). The
model seeks to identify a portfolio of stocks with, among other
characteristics, higher than average return on equity and earnings growth at
a reasonable price and positive price momentum over the last 6 to 12 months.
The model focuses on the characteristics of the aggregate portfolio rather
than screening for individual stocks that meet all the desired
characteristics. While the Growth Portfolio may invest in stocks of any
company, it is anticipated that it will invest primarily in stocks of medium
to large companies in the S&P 500 (that is, typically companies with a market
capitalization of $15 billion or higher).
In addition, effective August 1, 1998, the policies of The Growth Portfolio
regarding the use of futures contracts, which are described on pages 28-29 of
the Trust Prospectus, will be revised to permit the Growth Portfolio to use
futures contracts for non-hedging purposes (in other words, for investment
purposes) as well as for hedging purposes. For example, the Portfolio
Manager may invest in futures contracts rather than investing directly in
securities. The aggregate initial margins and premiums associated with
futures contracts used for non-hedging purposes will not exceed 5% of the
fair market value of the Portfolio's assets, after taking into account
unrealized profits and losses on such futures contracts. For purposes of this
5% limitation, options that are "in-the-money" at the time of purchase are
excluded.
NEW PORTFOLIO MANAGER FOR THE GLOBAL STRATEGIC INCOME PORTFOLIO
As explained on page 12 of the Trust Prospectus, Allmerica Asset Management,
Inc. ("AAM") serves as Portfolio Manager for The Global Strategic Income
Portfolio. The Portfolio Manager Agreement with AAM was approved by the
Board of Trustees on April 9, 1998. Trust shareholders approved the agreement
at the June 8, 1998 shareholders meeting which will allow AAM to continue to
serve as Portfolio Manager, subject to the terms of the agreement and the rules
of the SEC.
NEW NAME, INVESTMENT OBJECTIVE AND INVESTMENT POLICIES
FOR THE GLOBAL STRATEGIC INCOME PORTFOLIO
The name of the Global Strategic Income Portfolio has been changed to the
"Strategic Income Portfolio" and its investment objective and investment
policies have been revised to decrease its global focus. These revisions make
the Portfolio's investment objective and policies similar to those of other
portfolios currently managed by AAM.
The investment objective on page 11 of the Trust Prospectus has been changed to
the following:
The Strategic Income Portfolio seeks to make money for investors by
investing for high current income and capital appreciation in a
variety of fixed-income securities.
This new investment objective eliminates a previous reference to foreign
fixed-income securities. The Portfolio, however, retains the ability to invest
in foreign securities, as explained below.
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The description of the Portfolio's investment objective and policies on pages
19-20 of the Trust Prospectus is changed to the following:
The Strategic Income Portfolio seeks to make money for investors by
investing for high current income and capital appreciation in a
variety of fixed-income securities.
The Portfolio allocates its assets among debt securities in three
separate areas: (1) investment grade corporate debt securities and
securities issued or guaranteed as to principal or interest by the
U.S. Government or its agencies or instrumentalities; (2) below
investment-grade corporate debt securities; and (3) foreign securities
which include government debt of developed and emerging markets,
corporate obligations of foreign companies, and debt obligations of
supranational entities. The Portfolio will select particular debt
securities based on their relative value merits.
Debt securities in which the Strategic Income Portfolio may invest
include bonds, notes, debentures, mortgage-backed and asset-backed
securities, and other similar instruments. The Portfolio normally
invests at least 50% of its total assets in U.S. and foreign debt and
other fixed-income securities that, at the time of purchase, are
investment grade. The Strategic Income Portfolio may consider making
carefully selected investments in below investment-grade debt
securities of issuers in the United States and in foreign markets. No
more than 50% of the Portfolio's assets may be invested in securities
below investment grade quality (also called high yield or junk bonds),
which involve a high degree of risk and are predominantly speculative.
Consistent with the foregoing percentage limitations, the Portfolio
may invest in securities that are in default in payment of principal
and/or interest.
Investments in foreign markets involve substantial risks typically not
associated with investing in the United States. Emerging market
securities generally are subject to greater risk than securities from
developed nations. For purposes of the Portfolio's operations,
"emerging markets" consist of all countries determined by the
Portfolio Manager to have developing or emerging economies and
markets.
The Strategic Income Portfolio also may invest up to 5% of its assets
in loan participations and assignments.
These new investment policies differ from the previous policies by eliminating
certain ones specific to foreign securities. This change is consistent with the
new investment objective's decreased focus of foreign fixed-income securities.
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